final ruling on hybrids

The next question could be:-

I hold property in a hybrid discretionary trust set up by XYZ accountants...(I use the XYZ property investors special PIS hybrid discretionary trust). i am worried that the trust deed may fall foul of ATO ruling. How will the ATO ever identify all people holding property in this type of hybrid discretionary trust?

My reply:-

Did XYZ accountants set the trust up for you then proceed to lodge income tax returns on your behalf and behalf of the trust?

If so all the ATO need to do is have an issue with one or 2 clients of XYZ accountants and trust/individual returns...form an opinion on the hybrid trust deed... then audit all tax returns involving hybrid trusts of XYZ accountants..simply by searching on the accountants Tax Agent number.
 
Re XYZ accoutants, when you lodge a trust tax return you have to answer a question on whether it is a hybrid or not!

thanks Piston Broke

September API will have an article on Hybrids
 
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Thanks for your reply Ebbie. From the tone of this forum, it looks like HDTs are a No No.

HDTs are very good for joint business activity etc., but were not designed principally for passive investment by related parties.

There would usually need to be some other compelling reason why investors would choose this structure for family arrangements.

Cheers,

Rob
 
Yeah - I'm caught out by this as well. I also set up my HDT many years ago, I am pretty much in the same position as Ebbie. I sought legal advice, I spoke to Dale and decided to pull the trigger. I wish I had not. I have engaged a new solicitor to review my trust deed in light of the final ruling and will decide what to do from there. Currently I have the following options, none of them good

i. Continue to run the trust as is and redeem the units to convert to a discretionary trust. I'll be hit for CG if I do this, two of the three properties in the trust have significant capital gains, so it will cost loads

ii. Unwind the trust.....CG and stamps

iii. head in the sand and hope it all blows over (not going to happen)

iv. Take legal action against the advisers who got me into this mess......which I also think is not worth it.

It seems there is no way out.
 
Ajax,

To cut a long story short.

I have been told by Chan & Naylor (XYZ;)) that my PIT Hybrid is fine. He explained that some hybrid trusts may not have been set up correctly and therefore are having the problems listed above.

I established my first HDT in 2003.

I am going to take my trusts to another accountant get a second opinion.

The trust will still hold some asset protection when you consider the fact that if Joe Blog sues you, he will have a hard time accessing the units which you hold for your beneficiaries.

It is when the banks step in that you need to worry. In more ways than one!:eek:

In light of this whole situation in regards to HDT I am considering keeping it simple on my next purchase also. With the ATO having the power to change their rulings to anything they please, it seems that no tax law is safe. Nor has it ever been.

Regards JO
 
FTR I do have one HBT holding RE established a few years ago, but no units were ever issued.

Josko I think you need to clarity the phrase "units which you hold for your beneficiaries."
Who and how are they holding units for the beneficiaries?
Are you saying Joe Blo borrows money to buy units to hold for the benefiaciaries?
Also you need a lawyer for a 2nd opinion as it's a legal matter.
 
iv. Take legal action against the advisers who got me into this mess......which I also think is not worth it.

The term "Class Action" comes to mind.

I've read it twice and I still am not exactly sure how this will effect me though my gut feeling is it won't be pretty. No doubt just more expense on hiring even more "professionals" to explain it all followed by the pain of having to unwind it.

I feel like a St Kilda hooker. No matter which way I turn I get screwed. Though they seem better off. Every time they get screwed they make money...... :mad:

Cheers,

Arkay.
 
I came across this article about TD 2009/17 on JamesGG's website today. I know he posts here on SS but hasn't participated in this thread so I hope he doesn't mind me quoting him:

http://blog.houseofwealth.com.au/?cat=5

"As per our explanation in that article, this final determination looks to be good news. We spoke with our legal advisors this morning to be sure, and they were as rosy as ever in confirming that the trust deeds and resolutions that we like to use still comply with what the tax office are looking for."

Does anyone know which trust deeds these are? I know DaleGG used MGS deeds.

I thought he made a very good point in regards to whether the unitholder can claim a full interest deduction on their borrowings:

"It’s also important to note that in the first example, we would suggest that (all else being equal) Paul’s wife would likely be eligible to claim the interest on her share of the loan to acquire her units.

Looking at that first example a little closer, we can draw a fairly clear line from that point. You see, the tax office were happy in that example to allow Paul to claim 50% of the interest incurred based on holding 50% of the units. It is not a far stretch to conclude that should he hold 100% of the units in that example, he would be able to claim 100% of the interest
."


Comments?
 
It's all perfectly vague enough for the ATO to screw you should they desire to.

Words like "would likely be eligible" and "Making good points", hold absolutely no weight from the likes of these so called "Property savvy" accountants for me at this point in time. The only savvy I've seen out of any professional I've dealt with in this little circle of back rubbing in the past 5 years is how savvy they are at alleviating the cash from the pockets of investors trying to get ahead. (This includes accountants, agents, buyers agents, solicitors, conveyancers, quantity surveyors and the Federal Government). Interestingly my current accountant informed me last year that he could have set up the same trust that cost me $2400 for the sum total of $800.

Equally as interesting is that the greatest proponent of this structure is currently lying on a beach somewhere after conveniently selling his business just before this became an issue. The now director of that firm and several of his accountants read these forums. The silence is deafening.

Cheers,

Arkay.
 
Yes, I must admit the silence is deafening. I have started another thread asking for anyone....someone to comment on the advantages of using an HDT in 2009........and I have heard nothing, which is disappointing.

To be fair, I've heard plenty on that thread, but nothing which speaks to the advantages of using the HDT structure in 2009.

Now, the next thing I will say is that a TD is NOT a tax ruling....nor is it a final ruling, so I feel the title of this thread is misleading.
 
From TD 2009/17

Ruling

1. No. Interest on a loan used to settle moneys on trust to benefit the borrower and others cannot be deducted in full under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

2. The taxpayer's interest expense can only be deducted to the extent to which the taxpayer has used the borrowed moneys to gain or produce assessable income of the taxpayer. The interest will not be deductible to the extent that the taxpayer has used the borrowed moneys for the purpose of benefiting persons other than the taxpayer.

3. The conclusion that the taxpayer has used the borrowed moneys to benefit others will usually follow objectively from the terms of the trust. This will be the case, whether the moneys are settled on the trust upon its creation or at a later time.

4. Likewise, the terms of the trust will usually provide an objective basis for characterising whether the taxpayer has used the borrowed moneys for the purpose of gaining or producing their assessable income.

5. Where the terms of the trust indicate that the borrowed moneys have been used to benefit both the taxpayer and others, an apportionment calculation will be required to determine the taxpayer's interest deduction.

6. The interest expense is not deductible at all where the terms of the trust are such that no connection is perceived between the interest outgoing and the taxpayer's assessable income, or where section 51AAA of the Income Tax Assessment Act 1936 (ITAA 1936) applies.

-------------------------------------------------------------------------

To me this means that if the deed has a possibility in it of some benefit going to another person then not all the interest is deductible. It is not as simple as owning 100% of the units its a matter of being entitled to 100% of the benefits created by the investment. And if you are entitled to 100% of the benefits of owning the investment then you have got to ask yourself why you set up a hybrid.
 
The only savvy I've seen out of any professional I've dealt with in this little circle of back rubbing in the past 5 years is how savvy they are at alleviating the cash from the pockets of investors trying to get ahead.
...
Equally as interesting is that the greatest proponent of this structure is currently lying on a beach somewhere after conveniently selling his business just before this became an issue.
...
The silence is deafening.


I will not stand for people questioning my father's integrity. Not on. Cheap shot, Rick, when he is not on the forum to answer.

Now - for whatever it is worth;

I deliberately stay out of discussions on this forum relating to *all* accounting issues, not just HDT questions. I have taken this approach for almost two years now. If anyone that I deal with on a personal level wants my opinion, they can ask for it. It is not 'silence', Rick.

Also, Dale still operates his own website, and updated his book only a couple of weeks ago. I can assure you that he is not conveniently lying on a beach somewhere and ignoring the topic at hand.

Lastly;

Perhaps your aggressive approach and know-it-all attitude is not helping with the building of constructive construction, Rick.
 
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Yes, I must admit the silence is deafening.

I would suggest that you be patient and wait for a longer period of time before jumping to conclusions such as this. You posted in another thread at 4:11pm yesterday. It's been about 30 hours since then.

Everyone is busy, especially accountants at this time of year.

Give it some time.
 
James,

I'm not questioning Dale's integrity. I'm just as upset with Chan and Naylor and others (not even accountants, that were so pro HDT at the time I chose to enter into it).
Dale's selling of the business at the time I came along was unfortunate for me. That's all. Him "not being on the forum", is also unfortunate for those of us that trusted his advice once and can no longer obtain it when we most need it. Where ever he is he is not my advisor and I am unable to question him on what this ruling means to me. To be honest I never met him, only dealt with yourself for a very brief time before you were also gone so my experience with what remained was by and large a very very different one to what I believe others before my time may have experienced. In all honesty from my perspective the people that at the time were making assurances that this structure was viable disappeared leaving those new clients that came along at my time rather dazed and confused and simply unable to get any quality information regarding what, where, why and how this was to work from then on. That confusion still exists today, right now, if not worse as of this document from the ATO.

I take responsibility for that. I should never have put myself in a position where I was so reliant on such a small subset of individuals who's circumstances could (and did) change to my detriment.

My comments regarding the professions, accountants, agents, QA's, Buyers Agents etc etc come from a long and distinguished list of "mistakes" made by some of them for me on their behalf that I won't (and can't) go into on these forums and do not directly relate to yourself or Dale.

The truth is though that an 80 year long trust was established under the impression that it was a great vehicle for Buy and Hold property investment for the long term. As near as I can tell today, and without the ability to talk to those I was beginning to form a trusting bond with, it appears as if that is not the case (far from it). Certainly no one has a crystal ball and can see the future moving of goal posts from the ATO, so I am sorry if my comments offended, but I was given the impression that the goal posts could never be moved enough, or not be worked around, yet all other advice I receive is contrary to that. My comments are a reflection (admittedly overly emotive), of my feelings as to how my experience has unfolded in the past few years and are largely effected by the fact that many other accountants have told me that what I was initially told is just plainly wrong. Whether it is or isn't seems to be indeterminable and that is the greatest frustration I have. Clearly that frustration is showing in my last post.

At any rate the part of that comment that was relevant to me (as 99.9% of my experience took place after Dale and yourself were gone), was this:

The now director of that firm and several of his accountants read these forums. The silence is deafening.

Being the inheritor of the clientele and responsible for the maintenance and upkeep of these trusts and given that to my knowledge Chan and Naylor don't participate in these forums I had hoped that perhaps they might pass on some knowledge. Even a simple "We're looking into it, stay tuned"...

as for:

Perhaps your aggressive approach and know-it-all attitude

Well. In my opinion I have just reason to be aggravated and no, I don't know it all. Can't seem to find people that do either.

If you go and re-read my post you'll see that I even tried to keep the name Gatherum Goss out of my post completely because I wasn't getting stuck into you or Dale.

Cheers,

Arkay.
 
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Hiya Rick,

Thanks for taking the time to explain your thoughts in more detail, there. I'm sorry if I may have jumped the gun a little. There's been a couple of posts suggesting ill-motive lately, and yours was the one that got me to bite.

I apologise if I was perhaps a little emotive in my wording, too.
(even after I cleaned it up :D)

Cheers

James.
 
I would suggest that you be patient and wait for a longer period of time before jumping to conclusions such as this. You posted in another thread at 4:11pm yesterday. It's been about 30 hours since then.

Everyone is busy, especially accountants at this time of year.

Give it some time.

Yes i would also suggest being patient and wait a few more days as i'm sure the proponents of these trusts will be on here to defend them and let us know why we should still use them once they find out about this thread... i hope!

Perhaps JamesGG can ask Dale to make a reply to this issue if he has recently updated his Trust Magic book. If he does not wish to, perhaps he can at least email a reply to JamesGG so that he can copy and paste it here. This would also add some credibility to Dales updated Trust Magic book and could result in more sales for him. Win - Win.

Just realised this could be interpreted as a flame or being sacastic but it's not meant to be ... it's hard to communicate on boards without the use of tone and body language using just the written word -- the poor range (11) of smilies on here also don't assist with making good communication so my apologies in advance if anyone is sensitive and gets offended or hurt.
 
James,

No problem. I wasn't exactly in the best frame of mind when posting either and probably just shouldn't have :eek:

I wonder if the ATO understand just how much angst they create with a few tiny little pieces of paper? :rolleyes:

Cheers,

Arkay.

Hiya Rick,

Thanks for taking the time to explain your thoughts in more detail, there. I'm sorry if I may have jumped the gun a little. There's been a couple of posts suggesting ill-motive lately, and yours was the one that got me to bite.

I apologise if I was perhaps a little emotive in my wording, too.
(even after I cleaned it up :D)

Cheers

James.
 
If I recall correctly, there was one accountant on this board that maintained, from the beginning too, that HDTs did not work the way they were marketed - and that was Julia.

Good work Julia!:)
 
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